Warren Buffett will likely acquire Occidental Petroleum once its credit situation improves after already plowing nearly $20 billion into the company, Truist says

• Warren Buffett is likely to acquire all of Occidental Petroleum once its credit profile improves, according to Truist.
• The bank upped its Occidental price target to $93, representing potential upside of 58% from current levels.
• Buffett first bought $10 billion of Occidental preferred stock in 2019, and has since built his direct stake to nearly 20% of the company.

Warren Buffett's Berkshire Hathaway is likely to buy all of Occidental Petroleum once its credit profile improves, according to a Thursday note from Truist Securities.

"We believe there is good chance billionaire investor Warren Buffett buys the remaining two-thirds of Occidental that he and Berkshire Hathaway do not own once the company becomes investment grade," Truist Managing Director Neal Dingamm said.

Buffett has built a massive stake in Occidental Petroleum over the past three years, having first purchased $10 billion worth of preferred stock in the company when it was seeking financing to purchase Anadarko Petroleum in 2019.

Since then, Buffett has bought more than $8 billion worth of Occidental stock and now owns about 16% of the company, not including the $10 billion worth of preferred stock or the 84 million warrants already owned by Berkshire.

Earlier this month, Berkshire disclosed that it bought another $529 million worth of Occidental, so clearly Buffett still sees long-term upside in the oil and gas explorer.

Truist analyst Neal Dingamm said Berkshire usually only owns investment grade companies, and Occidental is "quickly on its way to becoming investment grade as [its] debt could soon go to less than $20 billion." Dingamm expects Occidental to obtain investment grade status later this year thanks to its debt repayment initiatives.

That, combined with $3 billion in share repurchases and strong free-cash-flow generation make Occidental a good fit for Berkshire, according to the note.

From an energy perspective, Occidental would "fit the Buffett mold" as it diversifies Berkshire Hathaway Energy's current exposure of coal, gas, wind and solar power.

While renewable energy is the future, recent supply chain disruptions and soaring gas prices have served as a reminder to investors about how important fossil fuels will be in the ongoing transition to a greener grid.

"We believe Occidental could fit nicely within the portfolio," Dingamm said. But Buffett will have to pay up for the remainder of the business if Truist's price target materializes. Dingamm sees Occidental trading to $93, representing potential upside of 58% from current levels.

Occidental stock rose 4% in Friday trades and is up more than 90% year-to-date as it benefits from higher oil prices. Berkshire Hathaway traded up 4% on Friday and is down 11% year-to-date.